Tritax Big Box REIT and UK Commercial Property REIT (UKCM) have agreed the terms of a merger to create the UK's fourth-largest real estate investment trust.
In a filing with the London Stock Exchange the boards of the two companies said the key terms had been agreed for an all-share offer from Tritax for the share capital of UKCM at 0.444 new ordinary Big Box shares per UKCM share.
The transaction would see UKCM shareholders holding approximately 23.3% of the shares of the new company.
The offer implies a value of 71.1 pence per UKCM share and approximately £924 million for the entire issued share capital of UKCM, a premium of 10.8% to UKCM‘s closing share price of 64.2 pence per share on 9 February 2024.
The boards said the rationale was to bring together "complementary logistics-oriented investment portfolios" with a shared focus on "resilient and growing income".
It would also improve the "customer offering" through a high-quality logistics portfolio across a broader range of property sizes and tenant uses, from “mega-boxes” to smaller, strategically located, logistics assets within key urban locations.
And it would provide additional scope for asset management and capital recycling to enable the combined group’s specialist management team to capitalise on new and existing investment and development opportunities, including from within Big Box's large development portfolio.
The companies jointly have a £6.3 billion portfolio focused on UK logistics generating over £290 million of rental income per annum.
The tie-up would also allow the two to target sustainable earnings and dividend growth with expected cost savings from aggregate management fees arising from the unification of management under Big Box’s manager, Tritax Management.
The company would be the fourth-largest UK REIT based on market capitalisation, with a combined market capitalisation of £3.9 billion. That, the two said, would lead to improved liquidity for all shareholders and expected associated cost of capital benefits.
The announcement follows a series of proposals from BBOX to UKCM and a period of negotiation.
UKCM said its board had received advice from Rothschild & Co and said its members, excluding chair Peter Pereira Gray, are minded to recommend it to UKCM shareholders. Tritax Big Box REIT said it has received non-binding letters of intent from Phoenix Life and Investec Wealth & Investment UK in respect of 56.5% of UKCM’s issued share capital as at 9 February 2024 to vote in favour of the offer.
Tritax Big Box REIT is a major investor in logistics in the UK with a portfolio valued at £5.05 billion in its most recent results, for the period to end of June 2023. It has a market capitalisation of £3.06 billion as of trading on Friday (10 February). It is listed on the London Stock Exchange in the FTSE-250. It was founded in 2013. Abrdn bought a 60% interest in its manager Tritax Management in 2020.
UK Commercial Property REIT has clear common ground in that it is managed and advised by Abrdn. As of its last results for the period to the end of December it owns a £1.25 billion portfolio of diversified real estate across the UK. It has a market cap of £844.62 million as of last trading on Friday. More than half of the portfolio (59.1%) is focused on industrial with the remainder relatively evenly split between offices, retail and alternatives including hotels.
Jefferies is advising Tritax.
For a December interview with Tritax chief Colin Godfrey about the history of the company and its plans going forward click here.
The UK real estate listed sector is seeing a major return to mergers and acquisitions.
UKCM itself terminated talks with Picton about a merger in November when UKCM's largest shareholder said it did not support the tie-up on the terms proposed. In January a recommended all-share merger was announced between Abrdn Property Income Trust and Custodian Property Income REIT to create an £1 billion REIT.
That merger followed hot on the heels of LondonMetric's blockbuster tie-up with LXi REIT as listed companies look to improve returns by increasing scale and reducing running costs.
London landlords Shaftesbury and Capco joined forces to form Shaftesbury Capital in March of last year.
Analysts at Shore Capital said the deal was not a surprise as it had been expecting a consolidation among UK REITs this year. "This deal looks good sense to us and we see the BBOX share price offering attractive long-term value."
The article was updated on 12 February to add the comment from Shore Capital.